Retirement may be a journey rather than a destination, but the cost of the ticket varies widely depending on where older Australians live.

Where the median 65-69-year-old retiree lives can affect their annual spend by more than $10,000 a year according to the Q1 2017 Milliman Retirement Expectations and Spending Profiles report. The data, which analysed the real-world spending patterns of 300,000-plus retirees, shows that Canberra retirees have the highest annual spend of any region in Australia at $38,923 while Tasmanian metro retirees spend the least at $28,816, with the median spend across Australia at $31,068.

These differences reflect a general trend: retired Australians living in capital cities spend far more than those in regional Australia. Several factors could be driving this, including higher costs of living and higher incomes leading to larger retirement savings that support better lifestyles.

Figure 1: Median annual spend by location

Cost of Retirement

Source: Millman Retirement Expectations and Spending Profiles Q1 2017

These expenditure variations create significant differences in target super balances. To fund the median annual expenditure of $31,068 throughout retirement with 75% certainty would require a balance of $129,621, assuming an investment in a balanced fund. This is not a simplistic target: it is based on stochastic modelling assessing thousands of scenarios incorporating the interactions of asset returns and inflation, spending drawdowns and the current Government Age Pension.

A Canberra resident would need a far higher balance, $280,444 at retirement, to fund their greater median annual spend of $38,923 with the same level of confidence. That’s more than twice as much super, although the Age Pension would still provide two-thirds of expenditure over the course of retirement.

By contrast, a Tasmanian metro resident would need a super balance of just $91,829 to fund their much lower median annual spend of $28,816. The Age Pension (a maximum of $20,745 a year not including the Energy Supplement) would underpin the bulk of this expenditure (91%) over the course of retirement.

Figure 2: Breakdown by locations – Age 65

Cost of Retirement

Source: Millman Retirement Expectations and Spending Profiles Q1 2017

The variation in the super balance required at age 65 is almost $190,000 depending on a retiree’s location. Australians will need to save more (or less) for retirement depending on where they live. A deeper analysis shows that where you live (and plan on retiring) plays a huge role and should form part of the retirement discussion.

Based on article by Jeff Gebler and Wade Matterson

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These articles are of a general nature only and are not to be taken as recommendations as they might be unsuited to your specific circumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions.

InterPrac FP directors and advisers may have investments in any of the products discussed or may earn commissions if InterPrac clients invest or utilise and any services featured. Your InterPrac FP adviser or other professional advisers should be consulted prior to acting on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.

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